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The Double Dip Arrives

Like an Unwelcome House Guest

Written by Brian Hicks
Posted August 31, 2010

The Doubledip family just parked their conversion van in America's front yard.

They're unpacking a full trunk in the garage, and their snot-nosed kids are running around the yard, whacking flowers with sticks and throwing rocks at the dogs.

They're here to stay awhile.

Why this one will be different

Recessions happen. In fact they're inevitable after debt-fueled spending binges like the one we've been on.

But this one will occur just as America's demographic time bomb is set to explode. Baby boomers — which make up an outsized proportion of the population — will tax Social Security and Medicare to the breaking point.

You're probably sick of hearing it all... "Baby boomers, Medicare, Social Security, doom and gloom, blah blah blah."

We've been hearing about this looming disaster for so long, it almost seemed as if it would never actually materialize.

But at some point in the near future, governments worldwide will be crippled by the cost of paying interest on their debt. I say that with no hyperbole or exaggeration at all.

In 2009, ten percent of the U.S. Federal Budget was spent paying interest on debt. The CBO says that number will reach 20%, or $917 billion, by 2020 — and that's the gov't's estimate, so you know it's based on rosy projections.

Here's a chart from NPR, based on CBO estimates:

us federal debt servicing 2020

Combine soaring debt servicing costs with underfunded pensions and broke state governments, and you have a recipe for some lean times...

I'm not talking Mad Max scenarios or anything crazy like that; but living standards will go down for a while. It's unavoidable.

Look, I don't enjoy writing about this stuff. I'd much rather be writing about tech stocks or PEG ratios. But this is the reality.

Investing implications

The next 10 years will not present an easy investing environment. Just look at a long-term chart of Japanese stocks to get an idea of what we could be facing.

Investors will need to be very diligent when buying equities.

Precious metals and other select commodities should do well. The world's population is still getting bigger, and emerging markets are still growing.

A friend of mine has a saying: "Make as much as you can, while you still can."

I think it's very applicable to today's world.

Until next time,

Adam Sharp
Analyst, Wealth Daily


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